The economic power of energy and the need to integrate it with energy policy

The economic power of energy and the need to integrate it with energy policy Drastic oil price changes, the associated economic perturbations, the coupling of energy conversion to entropy production in the form of emissions, and the problems of climate change call for a reappraisal of energy in economic theory. We review econometric growth analyses that do not weigh the production factors capital, labor, and energy by their cost shares. Their reproduction of economic growth in Germany, Japan, and the USA during the second half of 20th century is good. According to these analyses, energy's output elasticity, which measures its economic power, is much larger than energy's share in total factor cost, while for labor's output elasticity and cost share the opposite is true. This is consistent with profit and welfare optimization, if hitherto ignored technological constraints are taken into account. Computing the motion of the German industrial sector in its cost mountain, employing empirical data on factor quantities and prices, supports these results. The pivotal role of energy in economic growth provides leverage to energy policies that care about social well being and climate stability. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Energy Policy Elsevier

The economic power of energy and the need to integrate it with energy policy

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Publisher
Elsevier
Copyright
Copyright © 2015 Elsevier Ltd
ISSN
0301-4215
D.O.I.
10.1016/j.enpol.2015.07.026
Publisher site
See Article on Publisher Site

Abstract

Drastic oil price changes, the associated economic perturbations, the coupling of energy conversion to entropy production in the form of emissions, and the problems of climate change call for a reappraisal of energy in economic theory. We review econometric growth analyses that do not weigh the production factors capital, labor, and energy by their cost shares. Their reproduction of economic growth in Germany, Japan, and the USA during the second half of 20th century is good. According to these analyses, energy's output elasticity, which measures its economic power, is much larger than energy's share in total factor cost, while for labor's output elasticity and cost share the opposite is true. This is consistent with profit and welfare optimization, if hitherto ignored technological constraints are taken into account. Computing the motion of the German industrial sector in its cost mountain, employing empirical data on factor quantities and prices, supports these results. The pivotal role of energy in economic growth provides leverage to energy policies that care about social well being and climate stability.

Journal

Energy PolicyElsevier

Published: Nov 1, 2015

References

  • Endogenous Growth Theory
    Aghion, P.; Howitt, P.
  • The need to reintegrate the natural sciences with economics
    Hall, C.; Lindenberger, D.; Kümmel, R.; Kroeger, T.; Eichhorn, W.
  • Thermodynamic laws, economic methods and the productive power of energy
    Kümmel, R.; Ayres, R.U.; Lindenberger, D.
  • Oil's tipping point has passed
    Murray, J.; King, D.
  • Perspectives on growth theory
    Solow, R.M.
  • Cointegration of output, capital, labor, and energy
    Stresing, R.; Lindenberger, D.; Kümmel, R.
  • Economic growth and capital accumulation
    Swan, T.W.

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